Today, the coronavirus epidemic has spread to 200 countries. Of the 472,000 people infected, 21,000 have died and 120,000 have been cured. The spread of the infection is declining in Asia and increasing rapidly in Europe and North America. Countries that have acted preemptively and were prepared and disciplined, have relative control over the spread of the disease; while unprepared countries are losing thousands of lives and facing severe challenges. Due to Mongolia’s awareness from the very beginning, only 11 people were reported to have contracted the virus, so far; they arrived from Europe and are already in isolation. Today, more than 2,000 people are isolated for two weeks at two northern border crossings and in the capital. Additionally, there are still thousands of Mongolians abroad, who are looking for ways to return to their home country.
Mongolia has declared a state of emergency, imposed a quarantine, restricted the passage of planes and trains, changed working hours of markets and services, closed all schools until April 30, and launched distant learning. Coal export stopped in the first two and a half months of the year, companies provided paid and unpaid leave to their employees and, in some cases, distant working is being implemented. According to the MNCCI’s survey, two-thirds of enterprises and companies are experiencing a drop in income, while almost half halted the production and one-third have cut their vacancy. Budget revenues have been cut by 10%, foreign trade turnover has declined, and the economic growth has slowed.
Mongolia must fight the ‘econovirus’ as effectively and responsibly as it is fighting the coronavirus. In a dire situation, action must be taken, however…
Sluggish monetary policy
As economic activity weakens, the growth is stagnating. In such a situation, countries, first of all, loosen their monetary policy and increase the amount of money circulating in the economy. The Bank of Mongolia reduced its policy rate by 1% (to 10%) and the required tugriks reserve of the commercial banks by 2% (to 8.5%). Even if the economy is functioning regularly and growing slowly, the effect of this monetary policy will be shown in half a year. However, in Mongolia, the effectiveness of this policy is low, since no business entity would risk raising a credit at such high interest rates while there is no certainty as to when the quarantine will end and the demand increase.
Hence, we need to expand our fiscal policy. Often the budget expenditures are increased in order to keep the economy from recession. However, if the recession continues, it will turn into a depression followed by first, a financial crisis, and then, an economic crisis. Therefore, Mongolia needs to at least not reduce its budget expenditures, but revise its spending and way of investment.
However, Finance Minister Ch. Khurelbaatar has repeatedly stated that the budget will not be amended. One of the reasons why the government is wary of the budget amendment is that the 2020 state budget has already been approved with a deficit of MNT 2 trillion, a revenue of MNT 11.7 trillion and expenditures of MNT 13.8 trillion. Now, when the budget revenues decline -if the expenditures expand- the deficit will be even greater. The only reserve of MNT 620 billion in the Future Heritage Fund will not be enough to cover the deficit.
Another reason is the parliamentary elections in three months. Khurelsukh’s government is reluctant to amend its budget because members of parliament would not stop financing into their own electoral constituencies, moreover, as all ministers are members of parliament (except the Prime Minister).
However, additional funding will be needed to combat the epidemic. In this situation, the Mongolian government can only ask for soft loans and assistance from foreign development institutions such as the World Bank and the Asian Development Bank. Compared to the economy, although external debt has fallen from 90% in 2016 to 72% today, there is a little chance of issuing additional bonds on world stock markets. Since our foreign currency reserves have risen from red numbers to 4.5 billion USD, there will be opportunities to receive loans with favorable conditions and aid. If Mongolia get loans and assistance, the speed of Mongolian economy’s recession and depression will largely depend on how the money is spent and how it used.
The main thing is jobs, not seats in the Parliament
The ‘econovirus’, which was caused by COVID-19, is reducing both the demand and supply of jobs nation-wide. As sick and non-essential business employees stay home, the supply of employment goes down. Since the demand cannot be artificially enhanced, the government needs to take special measures to at least prevent the loss of existing jobs. Furthermore, the citizens in poverty, or those with low-income, need to be aided with their basic needs. Thus, some governments are covering the unaffordable wages of their citizens (Germany) and are distributing cash to every citizen (Hong Kong, Australia, and Canada). The epidemic is expected to subside in Asia in the third quarter of this year, and in other continents in the fourth quarter.
However, instead of looking for ways to keep jobs and providing financial assistance to citizens and businesses through measures like tax and loan discounts and advancing a portion of employer’s salaries, the Mongolian government shows a 2020 election syndrome. Authorities appear to expect that holding the election on time (June 24) will bring them more seats than a postponement of election, since if they wait longer, the economy will inevitably be in recession. In fact, the wisest and simplest decision is to postpone elections for at least a few months during this pandemic and support the economy at the expense of election savings.
Few days ago, the political parties submitted their program to the National Audit Office Mongolia. The ruling party MPP promised to provide housing for all social insurance payers and reduce interest rates, while the DP promised to increase the average household income up to MNT 3 million so that citizens themselves can afford housing. “Our coalition” (MPRP, Civil Will-Green Party, Mongolian Traditional United Party) will increase the people’s average salary to MNT 5 million. In that way, the Mongolian government has again been offered as an auction item to the voters. Actually, in a democracy with a free market economy, the average salary is determined by the market productivity and demand itself, not by politicians.
When political parties promise salary raises, more money and interest rates, they raise the national debt just to save their faces. In the 2008 election, the DP promised to give every citizen stocks equal to MNT 1 million valuation, and the current MPP (in that time MPRP) promised to give each citizen 1.5 million MNT in cash. After the election, the coalition government consisting of these parties has forced the Tavan Tolgoi company to take a very large loan for its distribution to the citizens. This debt, then, was paid with the taxpayers’ money for many years.
The whole world is focusing on coronavirus and its detrimental effects, meanwhile, what matters to Mongolian politicians is trying to gain power through the seats in the parliament. The “A Feast in Time of Plague” has been realized (Written by A.S. Pushkin. 1830).
2020.03.25
Trans. by Riya.T and Sungerel.U
Post Scriptum:
While this article was being published, President Kh. Battulga issued an appeal. The President assessed the spread of COVID-19 realistically and called for six measures. The first five suggestions are very important, and my article above explains how to implement them. However, I completely do not support the 6th proposal on the “centralization of state power”.
I believe that the government will succeed in implementing the first five proposals, just like the success it is having in the fight against COVID-19. However, I urge you not to weaken the government’s pace by splitting its governing power into two. By the way, during your New Year’s greetings, you announced that the writing off loans of all pensioners which have put pressure on the government, and the Development Bank has issued bonds secured by undeveloped mines and unsold concentrates, as a result the economy at risk and increasing external debt. If we had spent those 770 billion MNT to fight this virus, how many jobs would have been saved?
It is time to remind you that the executive power of Mongolia is the Prime Minister, not the President. You do not possess the authority to build railways, develop soums and construct a satellite city. I urge you to let the government take lead in these projects. Also, I demand a $10 million donation report taken from Russia’s largest oil company, Rosneft. Along with the audit report. We, the citizens of democratic Mongolia, do not want our President to do business with foreign funds.
You called for unity in difficult times. As you are the symbol and guarantor of the unity of Mongolians, your citizens are urging you to start strengthening their unity by leading by example. The corruption you promised to end is growing. Since you became President, some of the main characters in the anti-corruption spectacle have changed, but the drama continues. Big projects are still kept secret.
I advise you, Mr. President, not to strive for the possession of the executive power.
That same year, Venezuela’s President declared an economy of emergency, repealed parliament, and seized all political power. Twenty years later, the people of the world’s largest oil-rich country are beggars, with no toilet paper, no food, robbing each other.
Mongolia is a parliamentary country, unlike its neighbors with a single leader. Only in a parliamentary system, decisions are made by all citizens, not just one person. This is the guarantee of Mongolia’s independence.
It is right to wait out the virus and hold parliamentary elections in September, but then we must go forward.